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- [Narrator] Now that we've got[br]the demand curve down,

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let's move on to the supply curve.

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A supply curve shows how much[br]of a good suppliers

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are willing and able to supply[br]at different prices.

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As with the demand curve,[br]there's a supply curve

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for every good and service.

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And again the ideas[br]are the same, so let's look

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at the supply curve for oil.

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We see an intuitive relationship[br]between price

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and the quantity supplied.

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As the price goes up,[br]the quantity of oil

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that companies are willing[br]to supply increases.

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In this example, in a low price,[br]$5 per barrel,

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let's say 10 million barrels[br]of oil are supplied per day.

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At $20 per barrel,[br]25 million barrels are supplied,

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and at $55 per barrel,[br]50 million barrels are supplied.

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So in general, a higher price[br]means a greater quantity supplied.

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Let's delve deeper and see why.

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Oil exists all over the world,

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but it's not equally easy[br]to extract.

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In some places like Saudi Arabia,[br]it's really easy to get oil

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out of the ground.

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It's costs about $2 a barrel[br]to extract.

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Oil in the US, like from Alaska,[br]is a lot deeper

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and getting it out cost more,[br]at least $10 per barrel.

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And producing oil from an oil rig,[br]like the Atlantis rig

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in the Gulf Coast,[br]is even more expensive.

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That rig has to descend[br]more than a mile underwater

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before drilling even begins.

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When oil prices are relatively low,[br]the only suppliers

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that can turn a profit[br]are those who can get

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to the oil cheaply,[br]like Saudi Arabia.

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As the price goes up,[br]other suppliers in Nigeria,

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Russia, and Alaska, who have higher[br]extraction costs,

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start to become profitable[br]so they can enter the market.

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As the price gets higher,

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even the most expensive[br]extraction techniques

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become profitable.

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The supply curve slopes upward[br]because the only way the quantity

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of oil can be increased[br]is to exploit higher and higher

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cost sources of oil.

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As the price of oil goes up,

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the depth of the oil wells[br]goes down.

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With this simple line[br]the supply curve summarizes

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the way suppliers respond[br]to a change in price

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including how suppliers[br]will enter and exit the market

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depending on the price.

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So far, we've said things[br]like if the price goes down,

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buyers will want to buy more[br]or if the price rises,

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suppliers will want to sell more.

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But we haven't said anything[br]about how prices are determined.

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That's the subject[br]for the next video,

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Equilibrium.

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If you want to test yourself,[br]click "Practice Questions."

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Or if you're ready to move on,[br]just click "Next Video".

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